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Why Did Tata Nano Fail?

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The word failure is generally not something we associate with the Tata Group. So prolific is their presence in the Indian business sphere that we are automatically reminded of their reliable and top-quality performance anytime the Tata name is mentioned. From automobile to software services, from steel to power, the Tatas are omnipresent.

Right from the era of Jamsetji Tata, the original founder of the ever-increasing Tata Group, the company has gotten bigger and bigger. Further, it has not only increased in proportion, but the Tatas have also redefined what it means to maintain superior quality in all their interests across the board. In fact, the number of failures from the inception of the Tata Group are so few in number that they can probably be counted on the fingers of one hand.

We are gathered here today to talk about one such failure, namely the Tata Nano.

About a decade ago, the market was abuzz with talks of a revolutionary new product by Tata Motors. The Tata Nano was set to change the entire game by making a four-wheeler accessible to anyone. Cheap, fast and reliable, Tata Nano was the answer to all our problems.

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All the newspapers were printing updates about the much-awaited Tata Nano. Everywhere you went, people were talking about the Nano. Very rarely does a product receive as much hype before its launch as the Tata Nano.

Fast forward a decade, and the Nano has all but disappeared from the market. All that remains are a few sparse sightings of this revolutionary car on the roads, and the specification details on the Tata Motors webpage.

What happened?

How did a product that was so hyped up fade so fast?

What made the Nano go from the car that would change the industry to the car that no one remembers?

In order to understand the Tata Nano failure, we must go back to the beginning. 

I am going to transport you back to a time when the Tata Nano was still an idea inside Ratan Tata’s mind.

Let us get started then, shall we?

BIRTH OF THE TATA NANO

The idea behind the Tata Nano was deep-rooted in the principles on which the Tata Group functions. For them, business is not just a means to an end. The Tatas are very invested in the progress and development of the Indian economy. Much of their efforts and business plans have social connotations attached to them. 

The Nano was no different. Ratan Tata had observed the plight of the lower middle class Indian for years. He had observed how normal people travel by public transport. Come wind, come rain, come scorching sun, the lower-middle-class Indian has to resort to local trains and buses to get to work. For back then, a personal vehicle was considered to be an immense luxury. At best, all normal people could afford was a two-wheeler, nothing else.

Having a car was a status symbol. The fancier the car, the more money it signalled to the crowds. The well-to-do used the number of cars they owned as a way of advertising their wealth and their comfortable position in the upper strata of society. The common lower-middle-class man was left to the mercies of the Indian weather.

Ratan Tata sought an answer to this problem. He wanted to create a society where a personal car would be treated as an essential item and not a luxury. He wanted to introduce the large masses of lower-middle-class Indians to the joys and the comfort of the four-wheelers. He envisioned a world where people do not have to brave the weather and the woes of public transport in order to reach their workplace.

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The only thing that kept the masses from entering into the sphere of the four-wheeler was money. Of all the four-wheelers that were available in the market, the cheapest were in the range of Rs. 2.5 lakhs. The prices went straight up from there, depending on the features and the make.

Ratan Tata realised that in order to make the four-wheeler accessible to a larger public, he would have to create a car which was priced as low as possible. Thus, the idea for the cheapest car in India was born. The Nano was originally marketed with an expected price of Rs. 1 lakh. This was previously unheard of for a four-wheeler and took the market by a storm. Low price combined with a sturdy dependable design would ensure that owing a car was as easy as owning a motorbike or a cycle.

This seems like the perfect plan, does it not?

Then why did it fail?

REASONS FOR FAILURE OF THE TATA NANO

The failure of a business plan is generally rooted in multiple reasons and a hundred small decisions along the way. The failure of the Tata Nano was no different. Multiple mistakes along the way culminated in a disaster when the car was finally launched.

There are three main reasons which contributed to the failure of the Nano. We have summarised them below. 

The first main reason for the Tata Nano failure is the wrong marketing strategy.

WRONG MARKETING STRATEGY

Before launching a new product, it is very important to understand the target audience of that product. One needs to understand their psychology, their wants and desires. The marketing strategy is based on making the product seem attractive to that audience. The product becomes successful if the company can generate a sense of longing towards that product so that people buy it as soon as it is launched.

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This is where Tata Nano failed. The Tatas marketed the Nano as the cheapest car in India. The marketing campaign made it seem like the most attractive feature of the Nano was its unbelievable price of Rs. 1 lakh. For a four-wheeler, this seemed too good to be true, for the normal price of the cheapest four-wheelers was double that amount. 

What the Tatas failed to account for was the fact that the Indian markets are different from the rest of the world. Here, one cannot always bank on the assumption that the targeted audience will view the product in a rational manner. If the public had approached the Nano in with a rational mindset, they would have realised that what the Tatas were offering was an opportunity like never before. They should have grabbed onto it with both hands and taken that chance to change their lifestyles.

However, Indians have always associated a four-wheeler with luxury. In fact, this mindset is so ingrained in consumers that they treat a car as a status symbol. When this happens, rationality goes out the window. Suddenly, the most attractive feature about the Nano, its price, becomes the biggest problem. The image of the cheapest car in India made the Nano seem undesirable to its targeted audience. It directly contradicted the irrational association with a person’s status symbol.

The consumers took the low price of the Nano as an indication of its quality. What started off as a marketing campaign eventually took such a turn that it ruined the image of the product even before it was launched. 

This was a very unfortunate turn of events, and one of the main reasons behind the Tata Nano failure.

The second reason was the delayed delivery of the Tata Nano.

PROBLEMS IN THE NANO PLANT IN SINGUR

The Tata Nano was a truly revolutionary product in the Indian automobile industry. It seemed too good to be true that such a reliable company like the Tatas was launching a car at a never before price. When the product was first introduced, it was met with a lot of excitement and enthusiasm. So much so that Tata Motors received massive pre-booking orders for the Nano. 

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Tata Motors was excited at this reception, and they decided to obtain a large production factory where they could mass-produce the Nano for the Indian lower middle class. The search for an appropriate factory space for the Nano plant led them to Singur in West Bengal. Here, they obtained a production facility space which was large enough to house Nano plant for the mass production of the car.

However, this is where their problems started.

Singur is a small village in rural West Bengal. The land here is extremely fertile and the livelihoods of hundreds of farmers and their families depend upon the agricultural production from the fields. The farmers were devastated at the loss of their only source of income. Trinamool Congress leader Mamata Banerjee mobilised the farmers of Singur and led them in a unified protest movement. This protest mounted pressure in the public eye and eventually, Tata Motors had to relent and leave Singur.

Tata Motors eventually moved the production of the Tata Nano from Singur to Sanand in Gujarat. Here they created the Nano plant and started production. However, the resulting delays and costs associated with it had a tremendous impact on the final product. Tata Nano was finally released almost two years behind its original release date. Not only that, the final product was priced at Rs. 2.59 lakhs and not at Rs. 1 lakh as was promised. The final price was more than double the original.

The delays associated with the Singur protest had disastrous impacts on the entire production plan of the Nano. The delay caused people’s enthusiasm to die down. When the car was finally released to the market, nobody wanted it anymore. 

Failed promises along with delayed delivery contributed to the Tata Nano failure.

The third reason is centred around the concerns regarding the safety of the Tata Nano.

CONCERNS ABOUT SAFETY

Tata Motors expected the Nano to score highly in the Euro New Car Assessment Program (NCAP) crash test. However, when it was tested by a German automobile club in 2014, it failed miserably. As expected, it was revealed that the Tata Nano’s low market price came at the cost of several important safety features. The Nano did not have any airbags. Further, because the car was so lightweight and came with narrow tires, it lacked stability which was essential on Indian roads.

Further, reports started coming up of Tata Nanos catching fire for mysterious reasons. Several users complained that the Nano caught fire in the middle of the road for no real reason. This pointed attention towards faulty production and defects in the design of the Nano. Tata Motors claimed that the reason for the fire was related to the foreign electrical equipment used in the exhaust.

Whatever the reason may be, the fact remains that the Tata Nano was completely ruined in the public eye. People no longer trusted in its safety. Compromising on comfort is an acceptable error, however, compromising on safety is an unforgivable offence.

This proved to be the final nail in the coffin for the Tata Nano.

Thus we see that the wrong marketing strategy centred around the image for the cheapest car of India, the failed promises and delayed delivery associated with the failure of the Nano plant in Singur and the issues with the safety of the car combined to lead to the Tata Nano failure.

After declining sales for a few years, the production of the Nano was stopped in 2019. It remains one of the biggest failures of the Tata Group.

Let this be a lesson to show that even the infallible Tatas can make mistakes and have failures. Hopefully, this will be an isolated event and not be repeated in the myriad other initiatives the Tatas are involved in.

Happy investing!

author

Adrija